Some employees love stock options – but companies often stumble over the rules.

Case in point: Nortel Networks recently settled a court case brought by employees for $21.5 million because it didn’t warn them the company’s stock was risky. (The company ended up declaring bankruptcy.)

Your company clients may ask you about the ins and outs of stock options. Test your acumen by answering these three True or False statements:

1. Employees must receive hard-copy documentation that explains a stock option program’s terms and conditions.

2. Employers must wait at least six months after they grant stock options before receiving any value from the program.

3. When the stock option is based on performance, the determination must be made based on future performance, meeting previously established criteria, such as hours worked, efficiency or productivity.

Answers

1. False. The government doesn’t specify any particular mode of communication. But electronic communication should reasonably explain the terms and conditions in a way that employees will understand.

2. True. Employers must wait six months, except if: an employee dies, becomes disabled or retires. And if there’s a change in corporate ownership, the six-month rule can be waived as well.

3. False. This is just one option. Employers can also base the determination on the employee’s past performance. However – the determination is at the sole discretion of the employer.

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Tags: compliance, Employee Retirment Income Security Act, ERISA, nortel networks, stock market, stock options, stocks